November 27, 2012 / 10:36 PM / 5 years ago

Canada dollar weakens as U.S. fiscal concerns grip market

TORONTO (Reuters) - The Canadian dollar weakened against its U.S. counterpart on Tuesday as concerns over lack of progress in U.S. talks to avert the year-end “fiscal cliff” left investors cautious.

U.S. Senate Majority Leader Harry Reid said he was disappointed that there has been “little progress” by lawmakers to reach a deal to avoid the fiscal cliff, a convergence of an estimated $600 billion in tax increases and spending cuts that threatens to trigger another recession.

Benjamin Reitzes, senior economist and foreign exchange strategist at BMO Capital Markets, cited market anxiety about the U.S. budget talks and the comments by Reid for the currency’s performance. “We’ve stayed in a pretty tight range, there’s no reason to believe we’re going to get out of that anytime soon,” he said.

The weakness in the Canadian dollar was not alleviated by data that showed U.S. consumer confidence in November rose to a 4-1/2-year high[ID:nL1E8MR2SK] even though the currency typically responds positively to signs of growth in the economy of its southern neighbor and biggest export market.

One analyst said its move lower might have had to do with repositioning after a bounce in light trading last week.

“All the economic data that’s been released this morning, at least in the U.S. session, generally met or exceeded expectations,” said David Tulk, chief Canada macro strategist at TD Securities, referring to the consumer confidence index, house price data and gauges of planned business spending and manufacturing activity.

“So from that perspective, I‘m inclined to think of this as more of a couple of weeks worth of moves that’s being dealt with as opposed to just a momentary reaction to the data.”

The Canadian dollar finished the North American session at C$0.9947 to the U.S. dollar, or $1.0053, down from Monday’s North American close of C$0.9938, or $1.0062.

It underperformed most of its counterparts, including the euro, the Australian and New Zealand dollars.

Earlier in the session, investor sentiment was boosted after the International Monetary Fund (IMF) and Greece’s euro zone neighbors brokered a deal to cut Greek debt, and that, along with early U.S. data, briefly boosted the Canadian currency to C$0.9906, its strongest level since November 7.

After 12 hours of talks, global lenders agreed on a package of measures to reduce Greek debt to 124 percent of gross domestic product by 2020 and promised further measures to lower it below 110 percent in 2022.

“Maybe it’s buy the rumor, sell the facts. It’s a little bit of that today mitigating some of the positives on the back of the better U.S. numbers,” Reitzes said.

Prices for Canadian government debt were higher, with the two-year bond up 1.5 Canadian cents to yield 1.095 percent and the benchmark 10-year bond rising 30 Canadian cents to yield 1.728 percent.

Additional writing by Alastair Sharp. Editing by Andre Grenon; and Peter Galloway

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